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You want it back when......? Wasps likely to refinance 6.5% bond due 2022

Wasps Rugby Football Club’s chief
executive David Armstrong is to step down this summer after playing a key role
in the club’s relocation to Coventry’s Ricoh Arena; he will be replaced by
the club’s deputy chairman Nick Eastwood.

Previously CFO of African investment
conglomerate Lonhro, finance expert Mr Armstrong oversaw the ground-breaking
retail bond scheme which saw the club raise £35million from investors and pay
off its debt to Coventry City Council.

However, Wasps has
confirmed it might have to refinance the scheme after financial experts cast doubt
on the club’s ability to repay its debt.
In April 2015 Wasps
issued a retail bond on the London Stock Exchange’s Order Book for Retail Bonds
(ORB) exchange which allowed investors to purchase bonds with a minimum
investment of £2,000 in return for coupon payments equivalent to 6.5% p.a. paid
semi-annually until receiving their investment back as a lump sum in 2022.

Following the publication of Wasps’ half
year accounts the Daily Telegraph sought expert analysis of the figures from
accountants and an academic, concluding that the club is unlikely to be able to
meet its financial commitment to bondholders of repaying them in full by 2022,
making it likely that the club will seek to refinance the debt.

Overall, it concluded
that the club is ‘heading in the right direction’; it posted record revenues of
£17m, but still recorded a loss of £1.1m making it unlikely that its turnaround
will be rapid enough for the 2022 deadline to be achievable.

However, bond
holders will be heartened that the value of its stadium, against which their
investment is secured, is greater than the sum of its debts, although it has
said that selling its core asset is not considered a possibility.

Securing a headline
sponsor is expected to improve the situation considerably and the fact that
Wasps are flying high in rugby’s Aviva Premiership and on course for a place in
the final on 27th May will do them no harm at all.

In assessing Wasps’
situation for the Telegraph, Paul Carvell, managing partner at Stuart Fletcher
and Barrett, said: ‘The biggest loan they have is through Wasps Finance PLC (the
bond - RBE) which now stands at £33.9m. That loan is repayable in a lump sum
repayment in 2022.
‘There is no way
the company is generating the money to repay that. My only conclusion is that
they are going to have to re-finance, unless there’s a massive turnaround.
‘All I know is that
it’s not generating enough money at the moment to pay that off from its own
trade.

Sean Farnell, partner
at Burgis and Bullock, said: ‘There’s no way at current activity/income levels
that the club can repay the bondholders out of operating cashflow (in fact they
have negative annual cash flows so the situation is actually getting worse
annually)’.

However, Mr Farnell
noted that many sports businesses are run on debt and that the club should not
have any difficulty in refinancing.

Sports finance
expert Dr John Beech said: ‘The bond scheme was a bold and imaginative way of
raising capital, but has always carried with it the risk of whether Wasps will
be in a position to repay in 2022.
‘On present
figures, the repayment looks as if will be problematic; it seems likely that
some refinancing will be required.
‘There is of course
plenty of time for either revenues to be significantly improved or an
alternative source of financing to be found; currently the latter course seems
more likely, if carrying with it further risk.’

In response to the
Telegraph, a spokesperson for the Wasps Group said:
‘As we have always
said since launching the retail bond in May 2015, one of our options would be
to re-finance the bond, which we are entitled to do any time between May 2019
and May 2022.

‘Anyone working in
business in general or in the financial industry will understand re-financing
is a very common step in many financial situations and particularly for long-term
asset backed bond finance.

‘We would like to
underline that selling the Ricoh Arena has never been part of our plan. We have
said from the outset that Wasps’ long-term future is at the Ricoh Arena and
this remains true.’

Wasps’ owner Derek
Richardson paid fulsome tribute to Mr Armstrong who becomes a non-executive
director: ‘David’s impact on Wasps has been huge, from leading the original
purchase of the Ricoh Arena and the club’s relocation to Coventry, to the
launch of our retail bond, the redevelopment of our hotel, developing our new
fan base at the Ricoh and the launch of Wasps Netball.

‘On behalf of the
board, I would like to thank him for the tremendous impact he has had on the
club.

‘He leaves the
business and management team well positioned to continue its growth and we will
continue to benefit from his expertise as he continues to serve on the Board’.

David Armstrong,
said: ‘It has been a tremendous privilege to work with Wasps for the past three
years during a period of dramatic change and growth.

‘There is no doubt
that Derek Richardson and the Board are building a powerful long-term platform
to take the Club to great heights in the years to come.

‘Wasps will always
have a very special place in my heart and I would especially like to thank the
Wasps and Ricoh Arena staff for all their tremendous hard work and support.

‘I look forward to
continuing to work with the Club in my capacity as board member, while still
enjoying trips to the Ricoh to support the teams.’

With demand for
retail bonds remaining high from investors starved on income, Wasps bond closed
the day at 105.4, very much in positive territory, although some way below the
peak of 111.7 it achieved in September 2016.